The United States Treasury has been warning that unless borrowing restrictions, the so-called debt ceiling, were lifted, the nation risked defaulting on its obligations before the end of the month. The trauma of the world’s largest economy being unable to pay its debts would have risked a catastrophic shock to the global economy and the trust which is a necessary component of financial transactions. US lawmakers adopted the idea of a cap on public debt (historical debt, if you will) as far back as 1917 with the adoption of the Second Liberty Bond Act, paving the financial way to US entry to the First World War. Prior to the act, US lawmakers had to approve specific borrowing projects. It is not easy to find a figure for this initial ceiling, but it was hiked to $43 billion in 1919.
Currently, the US debt ceiling stands at $17.2 trillion (17200 billion) which will be breached shortly. The US House of Representatives has just voted to waive the debt ceiling for twelve months by 221 votes to 201, thereby avoiding financial Armageddon. Concerns had been raised that Republicans would use the issue as a lever to get concessions from the Democrats in power, as was the case in October, leading to the partial shutdown of the Federal government. However, the Republican leadership was able to find 28 members willing to side with the Democrats to provide the nation with a breathing space. It will not have escaped the leadership’s attention that their manoeuvring in the autumn was very unpopular with the electorate and that 2014 sees American mid-term elections.
In the 2014 fiscal year, Federal government is expected to run a budget deficit of $514 billion – the deficit is the imbalance between government receipts and its revenue. The deficit is met by increasing the public debt mountain. Many governments around the world are pledged to take steps to produce a budget surplus in the near term, but this does nothing to address existing public debt, of course.